Help needed on retirement options

enthusiasticsaver

Does anyone go for guaranteed income (annuity) pensions now?


My OH has just got quotes through to retire early in October of this year when he is 58. We will be taking advice from pension wise and financial advisor but wanted to get views of you experts too.


My husbands company have said he has an option to take an annual pension which is just over half his gross salary but obviously with no national insurance, company car tax and reduced tax his net pay will be around £500 per month less than his current salary. The pension offered is around £19900 per annum an amount we can comfortably live off with my salary as well.


He has 3 pots, his current Investor plan pension, a protected rights pot and an avc pot. The protected rights and AVC will only give him around £3k per year. They have also said he can receive a temporary pension until his state pension kicks in.


They have said he can take a lump sum of £135k approx which is the whole pot which is apparently tax free. I am guessing this is what most people would use to buy an annuity? Would this be an option worth considering?


We have around £120k in other savings - current accounts, regular savings, stocks and shares isas and fixed term cash isas. My gut feeling is we should leave the pension untouched initially and live off my salary initially and savings and then use the flexi-access drawdown option when this runs out which will be after his 60th birthday when the pot will have had a chance to grow further.


Any advice on where to go from here particularly from anyone who has taken early retirement or pensions experts.

kidmugsy

enthusiasticsaver wrote: »

My OH has just got quotes through to retire early in October of this year when he is 58. ...My husbands company have said he has an option to take an annual pension which is just over half his gross salary ... The pension offered is around £19900 per annum

Is this a Defined Benefit pension e.g. a Final Salary pension? If so, how much bigger would it be if he deferred taking it until he is sixty? Does it come with an automatic lump sum? if so, can he sacrifice some of the pension to get a bigger lump sum? Can he sacrifice some of the lump sum to get a bigger pension? What sort of index-linking does the pension enjoy?

enthusiasticsaver wrote: »

He has 3 pots, his current Investor plan pension, a protected rights pot and an avc pot. The protected rights and AVC will only give him around £3k per year. They have also said he can receive a temporary pension until his state pension kicks in.

This is confusing. Try again.

enthusiasticsaver wrote: »

They have said he can take a lump sum of £135k approx which is the whole pot which is apparently tax free. I am guessing this is what most people would use to buy an annuity? Would this be an option worth considering?

Who is "they"? What whole pot? Why is it "apparently" tax-free: says who?

dunstonh

Does anyone go for guaranteed income (annuity) pensions now?

Yes. Indeed, the level has stablised and has the last reported stats showed that for the first time since the pension freedoms came in, annuities had exceeded drawdown cases.

They have said he can take a lump sum of £135k approx which is the whole pot which is apparently tax free. I am guessing this is what most people would use to buy an annuity? Would this be an option worth considering?

No. People buy the annuity with the pension. If there is an option to get the whole post at 100% tax free then you would not buy a lifetime annuity unless the lifetime annuity rates are really good. It could be that its not an annuity but a scheme pension. But again, it would depend on the terms.

Some hybrid schemes can pay 100% tax free but they are not that common. Some schemes allow the AVC part to be used to pay the lump sum tax free, leaving the main scheme to pay the pension.

What you describe sounds more like a defined benefit scheme (with some of it being defined contribution). So, its coming across a bit hit and miss in the details. So, it is a tad confusing at present.

xylophone

I am very puzzled as to whether your husband has a DB/Final salary pension with AVC and a protected rights pension on top, or a DC pension.

enthusiasticsaver

kidmugsy wrote: »

Is this a Defined Benefit pension e.g. a Final Salary pension? If so, how much bigger would it be if he deferred taking it until he is sixty? Does it come with an automatic lump sum? if so, can he sacrifice some of the pension to get a bigger lump sum? Can he sacrifice some of the lump sum to get a bigger pension? What sort of index-linking does the pension enjoy?

This is confusing. Try again.



Who is "they"? What whole pot? Why is it "apparently" tax-free: says who?

It is no longer a final salary pension. He is a member of a former defined benefit scheme according to his company benefits scheme administrators who sent the quotes through.


As a comparison the scheme administrators have said if he took the pension in October 2016 it would be £19,900 (obviously if some of the pot was taken as a lump sum this would be reduced but no figures for this have been given as yet). If he waited until October 2017 the annual pension would be £20,962. The last statement he had showed by waiting until 2018 the annual pension would be £17825 plus a projected annual pension of £6570 for the defined contribution element but I am guessing this assumes continued contributions at the same level and we will not be making these once he retires.


He can take a bigger lump sum by sacrificing some of his pension but they have only quoted either an annual pension or a lump sum with no pension. The administrators of his pension scheme have said the lump sum if taken in its' entirety is a "tax free pension commencement lump sum".


I have looked at index linking and it says rpi +2% annually.


Does any of this make sense?

enthusiasticsaver

dunstonh wrote: »

Yes. Indeed, the level has stablised and has the last reported stats showed that for the first time since the pension freedoms came in, annuities had exceeded drawdown cases.



No. People buy the annuity with the pension. If there is an option to get the whole post at 100% tax free then you would not buy a lifetime annuity unless the lifetime annuity rates are really good. It could be that its not an annuity but a scheme pension. But again, it would depend on the terms.

Some hybrid schemes can pay 100% tax free but they are not that common. Some schemes allow the AVC part to be used to pay the lump sum tax free, leaving the main scheme to pay the pension.

What you describe sounds more like a defined benefit scheme (with some of it being defined contribution). So, its coming across a bit hit and miss in the details. So, it is a tad confusing at present.

That is right in that his pension consists of DB as the final salary scheme was withdrawn in 2008 I think and since then it has been DC so there are elements of both in it. Given he worked for 25 years for the company before the DB scheme finished he has some protected rights for this. It does say that as a former member of a DB plan enhanced terms apply to the revaluation of his deferred final salary benefit. They apply for the period up to December 2022 when he is 62.


The scheme administrators have quoted the maximum Pension commencement lump sum he is expected to take and they have said he could take a lesser amount and receive a larger residual pension but as it is blank where the pension figure goes I am assuming if he were to take the full £135k there would be no annual pension. Totally confusing!! When I look at the 2017 quote however it says a tax free pension commencement lump sum of £140,581 which includes the £135k plus a further £6246k from the protected rights fund which is about £5k more than if he took it in 2016. It also says he would get an annual pension in addition to the lump sum of £17819 per annum which is in line with what I thought although the lump sum is more than expected so I am wondering if the 2016 quote has a mistake in it and they forgot to fill in the annual pension amount.


I am sorry this is so disjointed but the options letter is so confusing, how anyone makes sense out of these I do not know.

enthusiasticsaver

xylophone wrote: »

I am very puzzled as to whether your husband has a DB/Final salary pension with AVC and a protected rights pension on top, or a DC pension.

The options letter he has says he is a former member of a defined benefit plan which is correct as he was in this from 1983 to 2008 when they withdrew the DB scheme and moved to DC instead which is his current scheme.


He paid in AVCs until 2008 and then when the scheme moved to a DC scheme he stopped doing these as there was an incentive (sweetener as removing DB scheme) for him to pay 10% of his salary into the DC scheme and his company would pay in 20% for 7 years on a sliding scale.


I do not know why he has the protected rights pension but the current value of the fund is around £50k. It does not specify where these come from unless this is something to do with the removal of the DB scheme in 2008.

kidmugsy

Well, the first point is that he has done well to build up those pension benefits. I think that it's possible that he'd be wise to find an IFA (Independent Financial Advisor) to help him with this. (The "I" really does stand for Independent: you don't want to use someone working for a bank or insurance company). The 2% inflation protection is mildly disappointing but better than none. Tell me, is this an ordinary early retirement, or does it include redundancy or severance pay too?

Among the questions on which he'd want advice are
(i) Should he draw the pension in October, or would it be better value to wait? If so, until age 60 or to December 2022?
(ii) What is the best balance (for him) between Tax-Free Lump Sum and extra pension?
(iii) What's best for the protected rights pot? Is it actually a separate pot, or part of the FS scheme, or part of the DC scheme?
(iv) Can the AVC be taken all tax-free, by co-ordinating it with the Final Salary pension?
(v) What is this business about a bigger pension until he draws his State Pension? (That was a feature of some Final Salary schemes - they front-loaded the pension payments for exactly that reason.) What size will his company pension be when he starts his State Pension? Or will the company pension be reduced when he reaches the old State Pension age of 65?
(vi) Should he take the AVC or protected rights benefits as pensions, or should he consider a transfer to a personal pension or a SIPP, from which he could take a 25% tax-free lump sum, and drawdown the rest at times to suit him?
(vii) The same question for the money in the DC pot. (Unless the terms are unusually good, the answer is likely to be "no, make a transfer".)

You may like to know that Aviva explains: "Protected rights were the value of the government's payments paid into your own pension arrangement. The money came from National Insurance contributions you made above those needed for the basic State Pension. If you contracted out of the State Earnings Related Pension Scheme (SERPS) or the State Second Pension, the government redirected your contributions to your personal pension instead. This was known as 'contracting out'.

Non-protected rights were the value of the payments that you and/or your employer made into your pension fund.

There used to be a difference between how you could use protected rights and non-protected rights benefits. When contracting out ended on the 6 April 2012 this difference ended and protected rights and non-protected rights are now treated the same."

enthusiasticsaver

kidmugsy wrote: »

Well, the first point is that he has done well to build up those pension benefits. I think that it's possible that he'd be wise to find an IFA (Independent Financial Advisor) to help him with this. (The "I" really does stand for Independent: you don't want to use someone working for a bank or insurance company).
We have always overpaid into my OH pension as he travels a lot and we thought he would not like to do that in his 60s so early retirement has been a goal since our 20s. I have just rang an IFA recommended by a friend who retired last December so will go armed with your questions and the scheme administrators have said they can supply more figures when we decide if he is actually going this October. So far this is our plan.


The 2% inflation protection is mildly disappointing but better than none. Tell me, is this an ordinary early retirement, or does it include redundancy or severance pay too?


It is rpi +2% - is that unusually low? This is early retirement - the company do not want him to go so no sweeteners (ie severance/redundancy) unfortunately.

Among the questions on which he'd want advice are
(i) Should he draw the pension in October, or would it be better value to wait? If so, until age 60 or to December 2022?
(ii) What is the best balance (for him) between Tax-Free Lump Sum and extra pension?
(iii) What's best for the protected rights pot? Is it actually a separate pot, or part of the FS scheme, or part of the DC scheme?
(iv) Can the AVC be taken all tax-free, by co-ordinating it with the Final Salary pension?
(v) What is this business about a bigger pension until he draws his State Pension? (That was a feature of some Final Salary schemes - they front-loaded the pension payments for exactly that reason.) What size will his company pension be when he starts his State Pension? Or will the company pension be reduced when he reaches the old State Pension age of 65?
(vi) Should he take the AVC or protected rights benefits as pensions, or should he consider a transfer to a personal pension or a SIPP, from which he could take a 25% tax-free lump sum, and drawdown the rest at times to suit him?
(vii) The same question for the money in the DC pot. (Unless the terms are unusually good, the answer is likely to be "no, make a transfer".)

You may like to know that Aviva explains: "Protected rights were the value of the government's payments paid into your own pension arrangement. The money came from National Insurance contributions you made above those needed for the basic State Pension. If you contracted out of the State Earnings Related Pension Scheme (SERPS) or the State Second Pension, the government redirected your contributions to your personal pension instead. This was known as 'contracting out'.

Non-protected rights were the value of the payments that you and/or your employer made into your pension fund.

There used to be a difference between how you could use protected rights and non-protected rights benefits. When contracting out ended on the 6 April 2012 this difference ended and protected rights and non-protected rights are now treated the same."

I think you are right and the protected rights are to do with opting out of SERPS some years ago as he did have a standard life private pension with the sErps contributions from the government which we then put back into his company pension scheme when the scheme opted back in again. His pension has been altered and chopped and changed so much in the 35 years he has been working for the company. Great and useful questions which I will take with me.


You are a star!! Thanks so much.

mgdavid

These sound very much like pensions with one of the members of Siemens Group companies. If I'm right and you'd like some more info I have recent personal experience, feel free to drop me a PM...

enthusiasticsaver

mgdavid wrote: »

These sound very much like pensions with one of the members of Siemens Group companies. If I'm right and you'd like some more info I have recent personal experience, feel free to drop me a PM...

Yes, you are correct. I have just tried to send you a PM but couldn't.